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A clause that provides that a dispute can only be settled in a foreign court, has been declared to be invalid (Tokyo District Court, February 15, 2016)

In this case, Shimano Manufacturing Co., Ltd. (“Shimano”), a Japanese supplier of Apple, Inc. (“Apple”), filed a suit against Apple, in the Tokyo District Court (the “TDC”). The suit claimed compensation of damages caused by a breach of the duty of care in the continuous transaction relationship, as well as through Apple’s abuse of its dominant position.

In 2009, Shimano and Apple signed a master development and supply agreement (the “MDSA”). In the MDSA, there is a clause (the “Clause”) to the effect that a dispute between the parties is to be resolved through a litigation in the state or federal courts in Santa Clara County, California, if the parties are unable to resolve the dispute through negotiation or mediation. The MSDA also provides that the terms of the Clause apply whether or not the dispute arises out of or relates to the Agreement, unless the dispute is governed by a separate written agreement.

In response to the complaint by Shimano, Apple requested that the TDC dismiss Shimano’s claims on the ground that there is a lack of international jurisdiction pursuant to the Clause.

In rebutting Apple’s response, Shimano alleged that the Clause is either invalid or cannot be invoked because: (i) the Clause is not made with respect to an action based on certain legal relationships (Article 3-7 (2) of the Code of Civil Procedure (Act No. 109 of 1996) (the “CCP”), as amended in 2011); (ii) that the Clause is a fruit of Apple’s abuse of its dominant position; (iii) that the courts in the State of California are not able to apply the Japanese Anti-Monopoly Act (Act No. 54 of 1947, as amended) to this case; and (iv) that the Clause represents an intent to undermine the compulsory regulation of the Japanese Anti-Monopoly Act, which offends against public order.

JUDGEMENT OF THE COURT

On February 15, 2016, the 18th Division of the TDC ruled that the Clause is invalid. Their reasons were essentially as follows:

First, Article 3-7 of the CCP (inserted by the amendment in 2011) requiring the scope of agreements pertaining to international jurisdiction to be restricted to an action that is based on a certain legal relationship applies only to agreements on international jurisdiction concluded on and after April 1st, 2012. Thus the Clause is not subject to that Article.

On the other hand, based on the judgement of the Japanese Supreme Court rendered on November 28, 1975 (Civil Bulletin, Vol. 29, No. 10, p.1554 et seq.), the validity of the Clause shall be judged under the general principle by reference to the spirit of the CCP before the amendment in 2011. The spirit of Article 11 (2) of the CCP before the amendment in 2011, requiring the scope of agreements pertaining to jurisdictions of domestic lawsuits to be restricted to an action based on a certain legal relationships, is to ensure the predictability of the parties and to prevent unpredictable damages to the parties. This underlying principle is applicable to the international jurisdiction as well as jurisdictions of domestic lawsuits. Therefore, the general principle requires the scope of an agreement pertaining to international jurisdictions to be restricted to an action that is based on a certain legal relationships, even if the agreement had been entered into prior to the date of enforcement of the CCP (as amended in 2011).

Therefore, the Clause, irrespective of whether the dispute arises out of or relates to the MDSA, is invalid because it does not fulfill the requirement that an agreement shall be made with respect to an action based on certain legal relationships.

COMMENTS

The ground of the court’s ruling was based on the general principle determined in light of Article 3-7 of the CCP (as amended in 2011) and Article 11 (2) of the CCP before the amendment in 2011. Therefore, this TDC’s judgment would apply to agreements pertaining to international jurisdictions concluded on and after the effective date of the Article 3-7 of the CCP (as amended in 2011).

Notably, this TDC’s judgment suggested that the Clause is invalid even in relation to a dispute arising out of or relating to the MDSA. However, there would be an objection that the Clause should be interpreted as valid in relation to disputes arising out of or relating to the MDSA.

Besides, Shimano also filed a patent infringement case against Apple, with the TDC. It was reported that Shimano lost the case by the judgment rendered on March 17, 2016

Compare jurisdictions: Litigation: Enforcement of Foreign Judgments

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